Higher Retirement Age Lower Benefits The President Says You Wont Notice

August 17, 2011

Richard Eskow

Back in my corporate days I sat in a boardroom with one of the most powerful and fearsome CEOs in the country. He had called in the executives that designed his employee benefits program and asked them to propose changes to the corporation’s retirement and health programs. But he scowled and shook his head as they presented one set of options after another. Finally I asked the question the others were afraid to ask: What do you want to accomplish by changing your employees’ benefits?

“I want to give them less,” he said, “and make them think it’s more.”

The Human Resources executives in the room turned pale. As brilliant as this CEO was, he didn’t know what they had learned from experience:

When you give people less, they always know it.

Less is Less

I thought of that meeting when I listened to the President’s remarks on Social Security in Iowa. A woman with lung cancer asked the President to speak about Social Security, and he began by employing a lot of the rhetoric he’s been reluctant to use so far, and by making a lot of the arguments he’s refused to make since he was elected.

“You pay into Social Security,” said the President. “They call it an entitlement, but it’s not an entitlement, you’re paying for it. It’s getting taken out of your paycheck.” A minute later he said this: “Social Security is not the cause of our debt and our deficit–so don’t let folks fool ya, by saying that in order to get a handle on our debt, we’ve gotta–we’ve gotta slash Social Security.”

So far, so good. But he also repeated a misconception that’s been promoted by the anti-tax crowd, when he said “it is true that as the population gets older, there’s going to be more and more pressure on the Social Security system.” And pretty soon he was promoting his idea of a solution:

“The way to do it is similar to the way Ronald Reagan and Tip O’Neill fixed Social Security back in 1983. They said, Okay, we’ll make some modest adjustments that are phased in over a very long period of time. Most folks don’t notice ’em.”

Out of Touch?

All Americans should be concerned about their financial future under this kind of plan, and Barack Obama’s supporters should be more concerned than anyone. A President who can suggest “folks won’t notice”the kinds of cuts he and others have proposed runs the risk of appearing both insensitive and hopelessly out of touch with the concerns and fears of average Americans.

Cost of living adjustments (COLA) are already too low to keep pace with living costs for seniors and people with disabilities(see here and here for more information), and the White House has expressed support for a new formula that would reduce these increases and cut benefits more with each passing year. This change would result in $121 billion less in benefit payments like Social Security, disability insurance, and other programs with COLAs during the first ten years alone.

“Most folks won’t notice ’em.”

As Social Security Works calculated, “The average earner at age 45 who begins receiving disability benefits would get a $333 benefit cut at age 55, and a nearly $700 cut by age 65. By age 75, when Social Security benefits are probably needed the most, that person faces a loss of over $1,000, an 8.1 percent cut.”

“Most folks won’t notice ’em.”

Look who noticed …

Proposed cuts led 33 disability groups to urge the President and Congress not to cut Social Security benefits.

Groups signing the statement included the American Association of People with Disabilities, the American Council of the Blind, the Association of Assistive Technology Act Programs, Easter Seals, the Epilepsy Foundation, Paralyzed Veterans of America, United Cerebral Palsy, and a number of others.

With all due respect, Mr. President: If you’ve lost Easter Seals, you’ve lost America.

Ahem. We couldn’t help but notice …

By age 75, the average retiree on Social Security will lose the money it costs to buy nearly three months’ worth of food. By 85 they’ll lose the cost of five months’ food. The average retired woman receives $890 per month will see her benefits cut by roughly $500 per year by the time she’s turning 80.

And working people will certainly “notice” that they’re being forced to work years longer at jobs that put stress on aging bodies. They’ll “notice” that they’re forced to stay in the private, for-profit health insurance system as the eligibility age for Medicare rises and their health needs become greater with each passing year.

Raising the age of retirement from today’s 66 to 69 would result in a benefit cut of around 20%, reducing the typical $14,000 annual benefit to $11,200.

People may not make the connection between higher unemployment rates and the fact that older people are being kept in the workforce for years longer than they once were. They may not realize that the nation’s skyrocketing health care costs were made worse by forcing millions of older Americans back into the for-profit insurance system. But they’ll “notice” how much they’re struggling to make ends meet.

Words and Action

What the President really seems to be saying is that he hopes they won’t “notice” who made the deal that put them in this position. He hopes they won’t “notice” that the so-called “Super Committee” was empowered to cut their benefits, or that his own commission proposed drastic benefit cuts he called a “framework for the conversation.” And he’s hoping that strong rhetoric in defense of Social Security and Medicare will be remembered long after cuts to these programs take place on his watch.

The rhetorical change is a step in the right direction. But it’s no substitute for action, especially when it’s accompanied by misleading statements about the “pressure” created by an aging population. That statement by the President isn’t true. The “age wave” was addressed in that Reagan/Tip O’Neill deal the President loves to mention. The baby boomers and their employers have been saving up for their retirement ever since, which is why there’s a $2.6 trillion surplus in the program’s trust fund.

What wasn’t addressed by Reagan and O’Neill was the massive upward shift in income, which meant that the payroll tax cap failed to cover the great (and undertaxed) earnings of the wealthiest Americans. Any solution that doesn’t address the real cause of Social Security’s mild long-term imbalance is intellectually dishonest and plainly unfair.

As for Medicare, which is a long-term budget threat, the logical first step to fixing its problems lies in a solution the President needs to fight for with more energy: giving Medicare the right to purchase drugs from whomever it wants, using its purchasing power to negotiate the best deals possible. From there, the President needs to fight for solutions that reduce the costly influence of for-profit health care on our long-term fiscal solvency.

Compromised Positions

“This is where everybody gets so dug in on their positions,” the President went on to say in his now-famous “both sides are wrong” manner. But the Democrats have compromised, many times over, starting with that Reagan/O’Neill deal. The Republicans refuse to raise taxes, and the President wants to be seen as the guy who rose “above left and right” to make a deal. And, for all we know, the President himself is ideologically committed to cutting benefits.

Either way, the President’s deeds, when measured against his proposals, add up to the same message I heard in that boardroom so many years ago:

“I want to give them less and make them think it’s more.”

That’s a tragic mistake that will hurt most Americans. People who support and admire Barack Obama should urge him to end this misguided approach before it leads to election results everyone’s likely to notice.